OFG Bancorp in San Juan, Puerto Rico, said it will record a $24 million provision tied to a loan participation it placed on nonaccrual status.
The $7.5 billion-asset company said in a press release late Friday that the provision is tied to its $200 million participation in a fuel purchase line of credit with the Puerto Rico Electric Power Authority, or PREPA.
Oriental said it was forced to take the provision because the territory's agency "has signaled an unwillingness" to meet its contractual obligations. The company said the provision will reduce its first-quarter after-tax earnings per share by 35 cents.
"Our credit analysis, based principally on data provided by PREPA and its advisors, shows the utility has the financial capability to pay its creditors," José Rafael Fernández, OFG's president and chief executive, said in the release. "However, in the recent negotiation for extending the more than eight-month forbearance period previously granted by its creditors, PREPA clearly demonstrated a reluctance to commit to do so, despite the utility's improved cash flows."
Oriental's regulatory capital ratios remain significantly above requirements for a well-capitalized institution.
Oriental's inherited the PREPA exposure through its 2012 purchase of BBVA's Puerto Rico operations. The line of credit is part of a syndicated $550 million fuel purchase line of credit.